A nuanced perspective on episteme and techne in finance

Yuval Millo and Christophe Schinckus

International Review of Financial Analysis, 2016, vol. 46, issue C, 124-130

Abstract: The debates on the Black and Scholes model shed light on the distinction between practices (i.e. inductive know-how or techne) and theory (i.e. deductive know-why or episteme) in finance. We revisit the classical distinction, still accepted widely in the literature, between episteme and techne and develop a nuanced view by introducing two other levels of knowledge we will call “commanding knowledge” (epitaktike) and “practical wisdom” (phronesis). The major contribution of this paper is to use these four levels of knowledge (episteme, epitaktike, techne and phronesis) in order to highlight how this model subtly influenced financial practices by shaping the microstructure of the emerging Chicago Board Options Exchange (CBOE). Our analysis will then be completed by a re-interpretation of the existing literature about the performativity of the BSM model to show how these levels of knowledge combined each other in the evolution post-crash (1987) financial practices.

Keywords: Episteme; Techne; Options; Chicago board options exchange; Market makers (search for similar items in EconPapers)
JEL-codes: G12 Z1 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:46:y:2016:i:c:p:124-130

DOI: 10.1016/j.irfa.2016.04.001

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